(September 29 – 12:20 ET) – The Toronto Stock Exchange Inc. is requesting comment on its plan to move to trading in 1¢ increments for listed securities selling at $5 or more.
Currently stocks trading over $5 trade in nickels, but with U.S. markets moving to pennies the TSE is looking to follow suit. Several listed began trading in pennies on the New York and American stock exchanges in late August. Earlier this week an additional 50 to 100 issues converted to trading in pennies.
In November all listed stocks may move to trading in pennies, with Nasdaq issues to follow in March. The TSE may be forced to go along because of the number of inter-listed stocks, if it intends to stay competitive with U.S. markets. The possibility of competition from alternative trading systems is also pressuring the move.
The TSE says that when trading increments moved from “eighths” to “nickels” for securities selling at prices of $5 or more in 1995, spreads generally declined to the benefit of investors and issuers and a detriment to dealers and market makers, but the impact on volume and market depth was minimal. In its request for comment it outlines the possible effects on pricing efficiency and price priority.
It notes that a move to pennies is likely to impact significantly on the current market making system. In the past, Registered Traders said that they would give up their stocks of responsibility and firms would reduce their commitment to market making if pennies were introduced because it may make the business unprofitable. “The exchange is presently examining market making responsibilities and the role of RTs. The impact of pennies will be part of this analysis,” it says.
The TSE says its systems can handle a move to pennies, although the volume of orders may increase 10% to 15%. “However, there is an industry concern as to the capacity of the systems of data vendors to be able to handle the increase in volume that would accompany a general move by North American equity and derivative markets to penny increments. In part, this concern is reflected in the tentative nature of the timetable to the move to decimal trading in the United States.”
The changes will take effect once approved by the Ontario Securities Commission following public notice and comment. Comments to the TSE are due within 30 days.
-IE Staff